Teradyne, Inc. (TER) DCF Valuation & Fundamental Primer
Teradyne, Inc. (TER) currently trades at $194.83 with an enterprise value of $5.22B. Our proprietary institutional model rates Teradyne, Inc. at 73/100 (Grade: B+ · Quality Software Operator). The current market price prices in an implied 5-year revenue CAGR of 44.2% vs. historical growth of -2.5% (Aggressive Growth Expectations Priced In).
Institutional fundamental teardown of Teradyne, Inc. (TER) covering SEC 10-K/10-Q cash flow conversion, SBC dilution friction, and Reverse-DCF valuation hurdles.
Teradyne, Inc. (TER) 3-Scenario DCF Valuation Range
Stress-test TER's 5-year growth, target FCF margin, WACC, terminal methodology, and SBC/dilution friction in real time.
Split between 5-Year Explicit Cash Flows and Discounted Terminal Value
2D Institutional Valuation Sensitivity Heatmap
Implied share price & upside/downside spread across 25 valuation states (Current Price: $194.83).
| WACC \ Terminal | 1.5% | 2.0% | 2.5% | 3.0% | 3.5% |
|---|---|---|---|---|---|
| 8.5% | $38.85 -80% | $40.91 -79% | $43.31 -78% | $46.15 -76% | $49.56 -75% |
| 9.3% | $35.45 -82% | $37.08 -81% | $38.94 -80% | $41.10 -79% | $43.64 -78% |
| 10.0% | $32.65 -83% | $33.96 -83% | $35.44 -82% | $37.13 -81% | $39.08 -80% |
| 10.8% | $30.31 -84% | $31.37 -84% | $32.57 -83% | $33.92 -83% | $35.46 -82% |
| 11.5% | $28.31 -85% | $29.20 -85% | $30.18 -85% | $31.28 -84% | $32.51 -83% |
Institutional Software Quality Scorecard (73/100 · Grade B+)
Solid software model with clear operating leverage, partially offset by standard SBC or moderate burn.
Solid cash generation with minor working capital absorption
Minimal dilution friction; management compensation aligned with shareholders
Sub-par gross margins; higher cost of delivery or hardware/services mix
Positive net cash cushion; self-funding operations with zero insolvency risk
Core Investment Strengths & Moats
- Low dilution friction: SBC is only 0.0% of revenue
- Net cash positive: $476.7M balance sheet buffer
Key Operational & Dilution Risks
- Lower software gross margins (58.5%), indicating higher hosting or service delivery drag
Reverse-DCF Solver: What Growth is Priced Into TER?
The current share price demands 44.2% 5-year CAGR (44.2% net of SBC & dilution)—a +46.7% acceleration over historical run-rate (-2.5%). Any growth slowdown risks valuation multiple contraction.
Headline Reverse-DCF ignores Stock-Based Compensation (0.0% of revenue) and annual share dilution (0.0%/yr). Accounting for both requires 44.2% 5-year revenue CAGR to justify $194.83/sh on a true per-share economic cash flow basis.
Teradyne, Inc. (TER) 5-Year Fundamental Forecast
| Statement Line Item | TTM Audited Base | TTM | Y1 | Y2 | Y3 | Y4 | Y5 |
|---|---|---|---|---|---|---|---|
| Revenue | $2.82B | $2.82B | $2.75B | $2.68B | $2.61B | $2.55B | $2.48B |
| Gross Profit | $1.65B | $1.65B | $1.61B | $1.57B | $1.53B | $1.49B | $1.45B |
| Operating Income (EBIT) | $593.8M | $593.9M | $579.0M | $564.4M | $550.3M | $536.5M | $523.0M |
| Stock-Based Compensation (SBC) | $0 | $0 | $0 | $0 | $0 | $0 | $0 |
| Unlevered Free Cash Flow (FCF) | $474.1M | $474.0M | $462.1M | $450.5M | $439.2M | $428.2M | $417.4M |
| SBC-Adjusted True Cash Flow | $474.1M | $474.0M | $462.1M | $450.5M | $439.2M | $428.2M | $417.4M |
Software & Cloud Services Peer Comparables & Rule of 40 Regression
Rule of 40 vs. EV / Revenue Multiple Regression
OLS Fit: EV/Rev = 4.9 + 0.15 × (Rule of 40) · R² = 17%Stocks below the gold regression line trade at a discount relative to their Rule of 40 compounding efficiency.
| Company | Ticker | Market Cap | TTM Revenue | Gross Margin | FCF Margin | Rule of 40 | SBC % Rev | EV / Rev |
|---|---|---|---|---|---|---|---|---|
| Teradyne, Inc. | TER | $31.30B | $2.82B | 58.5% | 16.8% | 14.3% | — | 10.9× |
| ServiceNow | NOW | $152.61B | $10.98B | 79.2% | 31.1% | 54.2% | 15.9% | 13.9× |
| Workday, Inc. | WDAY | $50.35B | $8.00B | 75.0% | 27.4% | 43.9% | 19.0% | 6.4× |
| Salesforce | CRM | $217.10B | $37.90B | 77.2% | 32.8% | 42.8% | 8.4% | 5.8× |
| Datadog | DDOG | $46.05B | $2.68B | 80.8% | 31.1% | 57.7% | 21.3% | 17.4× |
| Snowflake Inc. | SNOW | $71.79B | $3.63B | 66.5% | 25.2% | 57.7% | 40.8% | 20.0× |
| Hubspot | HUBS | $19.89B | $2.63B | 85.0% | 21.3% | 52.7% | 19.2% | 7.7× |
| Peer Cohort Median Benchmark (N=6) | 78.2% | 29.2% | 53.5% | 19.1% | 10.8× | |||
EV / Revenue Multiple Compression Stress Test
| Multiple Scenario | EV / Revenue | Implied Enterprise Value | Implied Equity Value | Implied Share Price | Delta vs Current |
|---|---|---|---|---|---|
| Current Multiple | 10.9× | $30.82B | $31.30B | $194.83 | 0.0% |
| -20% Multiple Compression | 8.7× | $24.65B | $25.13B | $156.45 | -20.0% |
| -35% Multiple Compression | 7.1× | $20.03B | $20.51B | $127.68 | -35.0% |
| Software Baseline Floor (5.0× EV/Rev) | 5.0× | $14.10B | $14.58B | $90.74 | -54.3% |
Frequently Asked Questions: Teradyne, Inc. (TER) Valuation
What is Teradyne, Inc. (TER)'s intrinsic DCF valuation and implied share price?
Based on audited SEC 10-K/10-Q filings and a 5-year 3-statement discounted cash flow (DCF) model, Teradyne, Inc. (TER) has a Base Case implied value of $35.44 per share (with a Bear Case of $25.34 and a Bull Case of $44.91), compared to its current price of $194.83. The model discounts projected free cash flows at a 10.0% WACC and a 2.5% terminal growth rate.
What is Teradyne, Inc. (TER)'s Rule of 40 score and Free Cash Flow margin?
Teradyne, Inc. achieves a Rule of 40 score of 14.3%, combining a -2.5% revenue growth run-rate with a 16.8% TTM free cash flow margin on $2.82B in trailing twelve-month revenue. In the Software & Cloud Services peer cohort, the median Rule of 40 benchmark is 53.5%.
What revenue growth rate is priced into TER stock according to Reverse-DCF analysis?
At $194.83 per share (Enterprise Value of $30.82B), our Reverse-DCF solver indicates the market is pricing in a 5-year implied revenue CAGR of 44.2%, compared to Teradyne, Inc.'s historical CAGR of -2.5%. Overall market expectations are rated as "Aggressive Growth Expectations Priced In".
How does Teradyne, Inc. compare to Software & Cloud Services software peers?
Teradyne, Inc. (TER) earns an institutional Software Quality Score of 73/100 (Grade B+ — Quality Software Operator). Across its Software & Cloud Services peer group (NOW, WDAY, CRM, DDOG, SNOW), the cohort trades at a median EV/TTM Revenue multiple of 10.8× and a median gross margin of 78.2%.
How does Stock-Based Compensation (SBC) impact Teradyne, Inc. (TER)'s valuation?
Teradyne, Inc. recorded $0 in TTM stock-based compensation (15.0% of revenue). When treating SBC as a cash-equivalent compensation expense, Teradyne, Inc.'s SBC-adjusted free cash flow yield is 1.5%, scoring 25/25 on our Shareholder Dilution Friction pillar.